During recent years, investors have looked to the exchange traded fund, or ETF, as a way to enhance their portfolios with commodities holdings. The SPDR Gold Trust has seen the highest rise out of all the commodities ETFs. The fund acquired over $7 billion during the first two quarters of this year and currently holds assets totaling $52 billion. This puts it second on the list of largest ETFs on U.S. markets, with a good shot at reaching number one.
There are other ETFs backed by physical gold, including the iShares COMEX Gold Trust and ETFS Physical Swiss Gold Shares Profile. iShares recently decided to cut its expense ratio from 0.40 to 0.25 percent to increase investor attraction to the fund. This method will exchange short-term revenue for development of a meatier asset base. The expense ratio decrease will not make a huge impact on investors and it is not likely to cause investors in the SPDR ETF to move over to iShares.
One thing that may happen is that new investors in gold may look for an ETF such as iShares that will provide them with the largest bottom line return. This trend can be seen in the space occupied by emerging markets, so it could easily take place with commodity-backed ETFs like iShares. When dealing with commodities, there are not many areas within which differentiation can occur, so the step taken by iShares represents one of only a few options.
This move to slash prices has been implemented by other ETFs before, but was met with only minor success. ETF Securities undercut two of its gold-backed ETFs in the past and GlobalShares cut the expense ratio on the FTSE Emerging Markets Fund. This ratio of 0.25 percent made it the cheapest fund in the Emerging Markets Equities ETFdb Category. The fund did not receive any cash inflows during the month of June 2010.
Analysts are not sure whether this expense ratio reduction will benefit iShares and some are surprised that iShares made this move. However, they are rather certain that this is not the last cost cutting move that will be made by a gold ETF. The effect on the ETF industry will be an interesting thing to watch.